In this post, we’ll unpack all you need to know about blockchain governance, defining exactly what it is, why it’s important, the different types and more.
What Is Blockchain Governance?
Blockchain Governance (BG) refers to the systems and processes through which decisions are made regarding the operation and evolution of blockchain networks.
Why It’s Important?
BG is important because it determines how changes can be proposed, agreed upon and implemented which ultimately determines the network’s integrity, security and adaptability.
On-Chain Versus Off-Chain Governance Mechanisms
BG can be categorised into two primary mechanisms: on-chain and off-chain.
On-chain governance involves decision-making processes that are executed inside of the blockchain. This method relies on blockchain mechanisms, such as smart contracts and voting protocols, to determine what changes should be implemented onto the blockchain.
Off-chain governance involves decision-making processes that are executed outside of the blockchain. This method relies on traditional mechanisms, such as community discussions and stakeholder meetings, to determine what changes should be implemented onto the blockchain.
Token-Based Governance
Token-based governance is a form of on-chain governance where decision-making power is tied to the ownership of cryptocurrency tokens. Token holders can propose changes or vote on proposals. Their voting power is often proportional to the number of tokens they hold. This model therefore incentivises holders to act in the interest of the network as they directly benefit from its success.
Governance Structures
Governance structures refer to the frameworks and rules that outline how decisions are made within a blockchain network. This includes who can make decisions, how proposals are submitted, how consensus is reached and also how changes are implemented.
Governance structures can range from decentralized models where decisions are made by all participants to centralized models where decisions are made by a select group of developers or stakeholders.
Summary (TL;DR)
BG refers to the systems through which decisions are made regarding the operation and evolution of a blockchain network.
BG is important because it determines how changes are proposed, agreed upon and implemented within a network. These factors determine the network’s integrity, security and also adaptability.
There are two primary types. Firstly, on-chain governance which refers to decision-making processes executed inside of the blockchain. Secondly, off-chain governance which refers to decision-making processes executed outside of the blockchain.
